Archives -

The One Thing CEOs Need to Learn from Apple

A few weeks before Steve Jobs passed away, I was at Apple having lunch with a leader there. We revisited the well-known story of Jobs returning to an almost-bankrupt Apple. Jobs could have tried to maximize profits by squeezing every cent out of each of the existing product lines. But instead, he led the charge to remove scores of products. (At the time, Apple had a dozen versions of the Macintosh alone.) Jobs cut out profitable business lines at a time when the company appeared it could least afford to do so, culling the business down to four clear product lines. My lunch companion and I agreed that this atypical move was critical to the Cupertino company’s transformation into what is arguably the most valuable business in the world.

But then my Apple lunch companion wondered aloud: “Why don’t more CEOs bring greater clarity to what their companies should not be doing?” It’s a significant question.

I’m surprised by how often CEOs pursue the opposite approach. The CEO of a major corporation that makes security for computers, where I have worked extensively, is a good example. He is clearly intelligent and has significant executive experience. Yet, he has unintentionally overseen growing ambiguity inside his company. Employees from Silicon Valley to Singapore can explain the problem: he is not facing the tough trade-offs. People are unclear about which of the six major product lines they should really focus on. When he was given the opportunity to clarify, the CEO published six priorities for the year: one for each of the product lines. Emphasis on everything has led to no emphasis at all. And employees are experiencing motion sickness instead of momentum. Why doesn’t he answer the question?

In some ways, it makes perfect sense. CEOs often want to keep their options open. If they put all of their energy behind a single idea and it goes wrong, they will feel the full brunt of the blame. Yet, by pursuing too many priorities, these CEOs may actually be risking future success even more.

For example, according to a source inside Google who wanted to remain anonymous, the proliferation of products at Google in recent years has been so extreme that some executives don’t know how many products they have anymore. If they don’t even know the numbers, do you think they understand what those products are and what functionality they possess? Each of these products drains resources. Each requires updates and support.

Deciding to cut options can be terrifying — but it is the very essence of what we mean by making strategic decisions. The Latin root of the word “decision” — cis — literally means to cut.

I spent an hour with a CEO of a Silicon Valley company currently valued at about $40B. We went back and forth on the principle of strategic clarity. He argued that his company could not be compared to Apple because Apple is a consumer products company with a relatively simple product line. He would love to have such simplicity, he argued, but his business is much more complex.

But such logic is backwards. Apple doesn’t enjoy product and customer clarity because they’re lucky. They didn’t drift into simplicity: they selected it by design. And by ‘selected,’ I mean they wrestled with the complexity, debated the issues, threw out hundreds of possible directions, and eventually arrived on the other side of complexity with the kind of sophisticated simplicity people know and love. As one example, Jobs explained at D8 (All Things D conference in 2008) that they were working on the concept for the iPad long before the iPhone, but stopped working on it to focus solely on the iPhone (Here’s a video of him talking about it.) The focus they enjoy required sacrifice.

Jobs said in an interview with Betsy Morris in 2008, “People think focus means saying ‘yes’ to the thing you’ve got to focus on. But that’s not what it means at all. It means saying ‘no’ to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things we have done.”

Since my initial conversation at Apple, I have made a point of asking leaders to define strategy. I’ve polled more than 200 leaders since and they have universally defined strategy as: “Saying what you want to do and how to do it.” Not one person has opted for Jobs’ definition.

Curiously, the very essence of strategy, which is embedded in classic research such as Michael Porter’s What is Strategy? doesn’t make it into these leaders’ practical definitions. Key to Porter’s logic is that business reality necessitates trade-offs.

A Question of Clarity. So next time you’re leading an offsite strategy session, don’t be satisfied with a list of priorities that you’re going to say ‘yes’ to. Go through the process of answering the essential strategy question: “What will we say no to?” It is that question that will reveal the real tensions in your team. It is that question that will uncover the core trade-offs in your organization. It is that question that can deliver the rare and precious clarity necessary to achieve game-changing breakthroughs in your business.

I hurt myself: the secrecy of self harm

According to a large study on self injury conducted in 2008 by the University of Queensland, 220,000 Australians injured themselves deliberately, without meaning to suicide, in the month prior to the survey. For some people, hurting themselves is a way of coping with overwhelming psychological pain. In this program we hear about what mental processes go on behind this behaviour and we hear from a young woman who openly shares her experience of self injury in order to educate health workers about the best ways to treat people like her.

Read all responses to this article

The Beliefs that Built a Global Brewer

Anheuser Busch InBev (AB InBev) announced its annual financial results this month and they are impressive, especially for a company with roots as a small brewer in Sao Paolo, Brazil. Now the largest beer company in the world, AB InBev reported a double digit EBITDA growth rate and almost 30% growth in earnings per share.

And yet, in announcing those numbers, management confessed: “We know we can do better. A fundamental part of our culture is never entirely being satisfied with our results: we always challenge ourselves to dream bigger and achieve more.”

That’s AB InBev in a nutshell: a relentless focus on achieving bottom line results, coupled with a ‘desire to dream.’

Observers tend to overlook the “dream” talk and chalk up AB InBev’s extraordinary success to its relentless cost cutting culture. But they’re only seeing part of the story. ABI’s success is the result of a shared dream — a set of nonnegotiable beliefs that everyone in the company lives by.

To understand what made AB InBev — a descendant of multiple mergers and acquisitions — the success story it is today, let’s trace the lineage of this ‘desire to dream’ through its complex family tree.

In 1989, a group of investors led by Marcel Telles purchased Brahma, then the number two brand of beer in Brazil. Telles and his team built the brand, took over the number one slot, and in 1999 combined with their chief competitor to form AmBev.

Expanding rapidly throughout South America, AmBev soon became the third largest brewer in the world. In 2004, the European beer company Interbrew, itself a product of several mergers, acquired a majority stake in AmBev, creating InBev. In 2008, InBev bought Anheuser-Busch, the leading US brewer. The result was AB InBev.

These acquisitions, coupled with organic growth, naturally fueled a rapid rise in revenue for each combination. But what’s most interesting is their meteoric increase in profits: Between 2000 and 2010, earnings before interest, taxes, depreciation and amortization (EBITDA) at the companies that now make up AB InBev rose at a compound annual rate of 38%.

A prime reason for the growth in profitability appears when you dissect the contribution of each party to the mergers. The Brazilian company AmBev, already at 20% EBITDA in 2000, increased its margins to a whopping 36% in 2003.

Something was working at AmBev.

Then Interbrew bought the company, and the effect was like yeast in bread dough: The EBITDA of the new company, Inbev, rose from 21% in 2003 to 37% in 2007. When InBev then acquired Anheuser-Busch, the combination had a similar effect. Anheuser’s EBITDA in 2007, prior to its acquisition, was 23%. By 2010, the EBITDA of the combined company AB InBev had risen to 38%.

In our book, Repeatability, Chris Zook and I describe how companies with repeatable business models grow sustainably and profitably. The consistent, dramatic increases in profitability after each of these combinations — in AmBev, then in InBev, then in AB InBev — are evidence of a repeatable model at work.

AB InBev’s repeatable model is built around 10 nonnegotiable beliefs. Only one of them talks about cost cutting. The majority focus on the kind of people, culture and ways of working that AB InBev believes are required to win. And it is not enough that top management believe in these ideas: What makes a repeatable model so powerful is that the employees on the front line believe in them too. Management and front-line employees dream the same dreams.

I’ve witnessed the power of these dreams on a number of occasions. While working in Brazil, we invited an AB InBev team (from the original AmBev) to talk to a client of ours about how they compete. Our client was amazed by their passion for winning. They spoke about how they “owned each city, each store and each shelf” and battled every day to beat the competition.

AB InBev’s executives devote a lot of time and energy to fostering this culture. As one manager said, “We create restaurant owners, not waiters.” When we looked perplexed, he explained: “If you’re a restaurant owner and a new restaurant opens across the street serving the same food, how do you feel? You feel like someone is putting your livelihood at risk, threatening you, threatening your family. It’s personal, because the restaurant is your dream. But if you are a waiter and a new restaurant opens across the street how do you feel? At best, indifferent. Actually, there’s now competition for your services. Many companies inadvertently create waiters. We work tirelessly to create restaurant owners.”

Repeatable models all share some specific design principles. One, as I described in an earlier post, is that these companies focus on their true source of differentiation. Another, as clearly seen here, is that they embed nonnegotiables: Management and front-line employees work together to define how they compete and behave.

These routines — routines that reflect the company’s differentiation and are supported by widely understood nonnegotiables — have incredible transformational power. They ensure that strategy doesn’t end at the boardroom, but is embedded in the daily actions of each employee.

The story of AB InBev — a firm that creates “restaurant owners not waiters” — is one of the most powerful examples of this we’ve found. It demonstrates how a seemingly soft idea like a dream can create hard results: share gain, margin improvement. And it shows how a repeatable model built a small Sao Paolo-based brewer into a global leader.

Teamwork on the Fly

Amy Edmondson, Harvard Business School professor, describes how to manage intellectually diverse and geographically dispersed groups.

Increase Your Team’s Motivation Five-Fold

In a famous experiment, researchers ran a lottery with a twist. Half the participants were randomly assigned a lottery number. The remaining half were given a blank piece of paper and a pen and asked to write down any number they would like as their lottery number. Just before drawing the winning number, the researchers offered to buy back the tickets. The question researchers wanted to answer is, “How much more do you have to pay someone who ‘wrote their own number’ versus someone who was handed a number randomly?” The rational answer would be that there is no difference (given that a lottery is pure chance and therefore every ticket number, chosen or assigned, should have the same value). A more savvy answer would be that you would have to pay less for the tickets where the participant chose the number, given the possibility of duplicate numbers in the population who wrote their own number. The real answer? No matter what location or demographic the experiment has taken place in, researchers have always found that they have to pay at least five times more to those who wrote their own number.

This result reveals an inconvenient truth about human nature: When we choose for ourselves, we are far more committed to the outcome — by a factor of five to one.

Conventional approaches to change management underestimate this impact. The rational thinker sees it as a waste of time to let others self-discover what he or she already knows — why not just tell them and be done with it? Unfortunately this approach steals from others the energy needed to drive change that comes through a sense of ownership of “the answer.”

Consider another practical example: One retail bank’s personal financial services (PFS) CEO employed a fairly literal interpretation of the above finding when he wrote his change story in full prose, in a way that he found meaningful. He then shared it with his team, getting feedback on what resonated and what needed further clarification. Then, he asked each of his team members to “write their own lottery ticket:” What was the change story for them, in their business, that supported the bigger PFS-wide change story? His team members wrote their own change stories, again in full prose, and shared it with their teams. Their teams gave feedback and then wrote their own story for their area/department, and so the process continued all the way to the frontline. It took twice as long as the traditional roadshow approach, but for a five-fold return on commitment to the program, it was the right investment to make.

Sam Palmisano, former CEO of IBM, in spearheading a change effort to move IBM toward a values-based management system, enabled thousands of employees to “write their own lottery ticket” regarding IBM’s values. During a three-day, online discussion forum (dubbed ValuesJam), more than 50,000 employees were empowered — literally — to rewrite IBM’s century-old values.

Other applications need not be so literal. At a global consumer goods company, the CEO brought together his top 300 for three two-day “real work” sessions over the course of three months, where they created the story together. Again, this required a significant investment of time, but having the top 300 five-times more committed to the way forward was considered well worth the investment. The story was then rolled out across the organization via one- or two-day sessions in which small working groups explored the implications for their particular parts of the business.

At a minimum, we advocate that leaders leverage the “lottery ticket” insight by augmenting their telling of the story with asking about the story. Consider David Farr, CEO of Emerson Electric, who is noted for asking virtually everyone he encounters in his organization four questions related to his company’s story: 1.) How do you make a difference? (testing for alignment on the company’s direction); 2.) What improvement idea are you working on? (emphasizing continuous improvement); 3.) When did you last get coaching from your boss? (emphasizing the importance of employee development); and 4.) Who is the enemy? (emphasizing the importance of “One Emerson”/no silos, i.e., he wanted to emphasize that the “right” answer was the competition and not some other department).

On a final note, many executives are surprised not only by the ownership and drive for implementation that comes from high-involvement approaches, but also by the improved quality of the answers that emerge. In speaking to HBR in November 2008, John Chambers, chairman and CEO of networking specialist Cisco Systems, described his experience in this regard, “It was hard for me at first to learn to be collaborative. The minute I’d get into a meeting, I’d listen for about 10 minutes while the team discussed a problem. I knew what the answer was, and eventually I’d say, ‘All right, here’s what we’re going to do.’ But when I learned to let go and give the team the time to come to the right conclusion, I found they made just as good decisions, or even better — and just as important, they were even more invested in the decision and thus executed with greater speed and commitment.”

What it comes down to, of course, is that when people make their own decisions, they are more dedicated to everything that follows. If your team wants what you want them to want, you are five times more likely to get it.

Orchids, dandelions and an intriguing set of genes

Are you a sensitive flower — like a vulnerable orchid, or more like a hardy dandelion? We explore the intriguing orchid–dandelion hypothesis which suggests that the genes that underlie our greatest weakness may also be the basis for our most positive traits, given the right environment.

Read all responses to this article

Better Teamwork Through Better Workplace Design

Collaboration is the way we work now. In a 2008 BusinessWeek study of white-collar professionals, 82% reported they needed to partner with others throughout the day to get their work done. That means people don’t just work together in meeting and conference rooms anymore. Collaboration now occurs all the time at personal desks and in hallways, or virtually via internet or smart phones, and it’s often spontaneous and informal, rather than planned in advance.

Unfortunately our legacy work environments — dominated by offices or cubes — rarely match this new reality. To effectively do so, they need to adequately accommodate three types of work: “I work,” which requires expertise, concentration and focus; “You & I work,” which involves relatively simple collaboration among two people; and “We work,” which embodies the highest level of content and context complexity, from multi-disciplinary expertise to multi-location and multi-technology platforms.

Yet most workplaces are still heavily anchored in “I work” designs. A report (PDF) from Gensler Architecture found that only half of the US workforce feels that their environment empowers them to innovate, while another white paper (PDF) from office design specialist Steelcase found that 70% of workers today waste up to 15 minutes just looking for a space to meet and 24% waste up to half an hour. Indeed, most workspaces provide little choice regarding where and how to work. Individual workstations separate people from one another, meeting spaces have to be reserved in advance, areas with audio privacy for video and teleconferencing are limited in number, and social spaces, if they exist, often lack power sources or WiFi. With mixed-presence team members, some co-located and other stationed globally and connected via technology, efficient collaboration is becoming a true challenge.

Organizations can address this problem by redesigning their workspaces around the following principles:

Focus on four main activities. Employees need to have areas for concentrated work (such as unassigned individual workstations), emergent social exchange (free-flowing hallways), learning (rooms equipped with technology and tools), and collaboration (group spaces for co-creation). The key is to make sure the different types of spaces are integrated with each other and open to all, so people can freely choose where to be based on what they’re doing.
Vary the size of workspaces, and the technology with which they’re equipped. Collaborative work happens best in spaces that accommodate a group of four to eight people physically or virtually or in a larger team space with multiple small pods where people can still see each other. It’s also important to give everyone equal access to on-line and on-site information.
Provide collaborative tools. Effective collaboration involves knowledge exchange, brainstorming, the inclusion of diverse perspectives, and scenario building. Companies must therefore provide tools like whiteboards that allow employees to record ideas and create a visual, side-by-side review of alternative solutions. Such tools are key enablers helping groups reach a shared understanding faster and more effectively.
Give project teams a dedicated space. The concept of ‘distributed cognition’ suggests that thinking processes are embedded in the physical work environment. A team room can provide “cognitive space” to hold ideas and experiences. Returning to the same workspace each day, keeping meeting notes on the board, and leaving work samples and half-finished prototypes on tables between meetings can help teammates maintain a shared project mindset, sharpening their focus and speeding up the collaborative process.

Team collaboration is challenging enough without needing to attend to underperforming workspace. Companies like Skype, Cisco, and Pixar have already deployed cleverly designed work environments to best enable new value creation through collaboration. It’s time to align the physical with the strategic.

This post is part of the HBR Insight Center on The Secrets of Great Teams.

The Health Care Reform That Can’t Be Stopped

There are few more personal, passionate, and political topics than health care. The reasons for this are clear: Health care spending has reached 17% of the U.S. GDP, outcomes are worse than in other developed countries, and an attempt to fix the system through the Affordable Care Act (ACA) now sits in the hands of the U.S. Supreme Court. But regardless of ACA’s legal prognosis, the Pandora’s Box of true health care reform has already been opened — and it happened before most of us realized.

It happened in the throes of the recent Great Recession when Congress passed the American Recovery and Reinvestment Act of 2009 (better known as the bailout). Nearly $800 billion was targeted to create new jobs, save existing jobs, and spur economic activity. What many don’t realize is that as part of those funds, the incentives created to digitize medical records were massive — amounting to $40,000 to $65,000 per physician and $11 million per hospital for the “meaningful use” of health information technology.

Just as important as the financial carrot was the accompanying stick wielded by the Centers for Medicaid and Medicare Services, the largest single payer in the United States — the threat to reduce payments to physicians and hospitals by 1% per year if they fail to submit invoices electronically. For an industry typically operating in the low single digits of profitability, this is a heavy stick indeed — prompting many organizations not to wait to see if the bill gets struck down before taking the necessary steps to comply.

The upshot of the big carrot and the big stick has been a rapid shift to digital health care, notwithstanding the well-known and well-documented debilitating effects of the current system’s fee-for-service model that rewards health care providers by the procedure.

That fee-for-service model is being disrupted not only by the shift to digital health care but also by an early effect of the ACA, which laid the groundwork for an accountable care model that is very attractive to employers. This less-talked-about part of the legislation aims to reduce unnecessary hospital readmissions through readmission penalties and by funding accountable care organizations that are rewarded not for doing procedures but for keeping a population healthy.

The introduction of this fee-for-outcome model kicked off a change in health care that many believe is irreversible. One of them is Dr. David Burton, CEO of Healthcare Quality Catalyst, a Salt Lake City-based health care technology company focused on a data-driven approach to continuous improvement. Dr. Burton was an integral part of the early data revolution in health care when he was a physician and executive at Intermountain Health Care, the largest health care provider in Utah. “There is a groundswell that is trying to move from fee-for-service and its perverse incentives,” he says. “At some level, it doesn’t matter too much what happens with ACA because the fuse is already lit.”

And no wonder since employers — the forgotten player in the health care conversation — are the ones footing much of the bill. The move to fee-for-outcome payment models holds so much potential to lower costs and improve the quality of care for their employees that it’s hard to see employers letting up the pressure on the health care providers to move in that direction, no matter what the fate of the ACA’s government mandates in the courts.

With incentives reformed, the potential to apply efficiency techniques that work so well in other industries will have a chance to scale up, and initiatives begun long ago will have new life. Burton and Intermountain Health Care, for example, began working with electronic data in the mid-1970s, long before runaway costs prompted any national discussion of health care. Intermountain has also long been a strong supporter of the data-centric Toyota Production System (TPS) that was so effective in disrupting the automobile industry through its focus on data-driven continuous improvement.

Intermountain Healthcare CEO Dr. Charles Sorenson summarizes their successful approach this way: “We end up having less waste (expressed in our business as fewer medical errors), and that reduces cost. Even more importantly, we have the opportunity to not do things that don’t add value.”

Fellow TPS pioneer ThedaCare, which likewise has been employing Toyota’s industrial efficiency principles in its hospitals to great effect for more than 10 years, is now seeing great interest from other organizations, as the health care industry moves to reap the rewards of its seemingly-necessary move to digitize information. So much interest, in fact, that it has created the ThedaCare Center for Healthcare Value to help other organizations realize the promise of digitization. Its head, former ThedaCare CEO Dr. John Toussaint, doesn’t mince words when he talks about what’s bringing all those organizations to his door — and it’s not federal legislation.

“Health care performance was and still is unreliable,” he says flatly. “Those who are honest about what they’re doing recognize that. Twelve years ago, ThedaCare compared manufacturing and health care quality and found health care to be far worse: 90,000 to 100,000 defects per million opportunities [versus the three defects per million norm in manufacturing]. That’s quite frankly still how U.S. health care performs. A 2010 HHS Study said we were killing 15,000 Medicare patients per month with medical errors. The NIH’s Crossing the Quality Chasm in 1999 showed the same thing. When you peel back the onion, we’re doing really lousy; maybe it has even gotten worse. Those of us who have been in the business of quality improvement have been trying to understand why that is and implement processes to change that.”

As proof of the effectiveness of its data-driven reform efforts, Dr. Toussaint points out that ThedaCare’s Collaborative Care has reduced medication reconciliation errors — that is, errors from incorrect or conflicting orders for medications — to zero and maintained that number for four years. Toussaint also points out that their published thirty-day re-admission rate of under 9% is less than half the national average.

Whether reform is repealed or not, Toussaint says, “The reform initiatives in the private sector have already begun and there’s no going back because there just isn’t any money left. Health care delivery organizations are going to learn to live with less revenue. We have big problems that won’t be solved by throwing more money at them. We can either cut the health care workforce by x percent while reducing quality or we can use data and a proven methodology to make it less expensive and maintain quality. This transcends whatever happens in Washington.”

Four Ways to Think Like an Innovator

Scott Anthony, managing director of Innosight Asia-Pacific and author of The Little Black Book of Innovation, explains how to become more creative.

Adventure Race Teams and Audacious Goals

I’ve learned about building great teams the hard way: by competing in the world’s toughest adventure races. From the leech-infested jungles of Borneo to the towering peaks of Tibet, my teams have run, paddled, mountain biked, climbed, and whitewater-rafted for up to ten non-stop days and nights, with no shelter, no warm food, and no reprieve from the competitors nipping at our blister-covered heels. If just one racer from a four-person team quits, we’re all disqualified. By necessity, the journey to the unimaginably distant finish line becomes less about athletic skill than about great leadership and the ability to inspire tattered teammates.

So how do leaders keep a team moving toward an audacious goals with one heart and one mind? Here are a few essential rules that I’ve learned from the toughest teams on earth:

Be ruled by the hope of success rather than the fear of failure. Are you doing what it takes to “win” or what it takes to “not lose”? Fortune favors the bold. Great leaders shatter the norm, change the game, and do things that have never been done. They are courageous, not only in terms of innovation, but in terms of perseverance: taking step after step, day after day, relentlessly pursuing excellence. We won many a race not only by “slowing down less” than the other teams, but by coming up with some game-changing solutions. In the Borneo Eco-Challenge, for example, we turned a proposed hiking leg of the race into a swimming leg by jumping into the whitewater rapids and swimming for several hours downriver (just yards from the hiking trail) mostly in the dark. It was extremely risky, but also cutting-edge cunning. We never looked back, and led the race from there to the finish line.

Offer a tow line, but most importantly, take one. Leave your ego (but not your confidence!) at the starting line.You happily offer your strength to your teammates when they need it, but do you also offer your weaknesses? On our team, every racer has “tow lines,” made from thin bungee cords, hanging from the back of our packs. If we’re feeling strong, we offer it to a struggling teammate. If we’re having a low moment, we grab a tow line from someone stronger and get lightly pulled along until we recover. The goal? To “suffer equally,” as my favorite team captain eloquently puts it. You’ll get farther, faster if you do. I believe that you haven’t used all your strength as a leader until you’ve accepted help from your teammates. It’s tough to do sometimes. But people will be thrilled to have a chance to help you and, by allowing them to, you’ll create a stronger bond between you.

Always act like a team; it’s far more important than feeling like one. You’re not always going to feel warm and mushy about your team. You’re human! But on adventure race teams, no matter how we feel, we’re never allowed a day off from being the leader or teammate that people need us to be. So we fake it until the good feelings come back. During the World Championships in Ecuador, my team had a major disagreement about our navigation. In fact, we didn’t speak for hours. But as we approached the media crews on our exit from that hiking leg, our team captain said something that changed the game for us: “If you want to become the world champions, you need to act like world champions.” And I’m telling you we could have won an Academy Award for that performance: congratulating each other on a job well done, getting food for each other, high fives and hugs all around. It was all for the cameras, of course, but guess what happened? By the time we’d gotten our new gear and moved on, we were all genuinely happy together again. The argument never resurfaced. We were too busy winning.

This post is part of the HBR Insight Center on The Secrets of Great Teams.

Older Entries